Target’s future in doubt as Kmart booms

TARGET has been an Aussie retail staple for years - but now, its future is in doubt.

Yesterday, Wesfarmers managing director Rob Scott revealed the company had recorded a "non-cash impairment" of $300 million due to Target's lacklustre sales.

In a media conference, Mr Scott confirmed some Target stores could disappear in Australia under the company's new "agnostic approach", which meant unprofitable Target stores could be converted into Kmarts if it was in the best interests of the wider company - although he ruled out the possibility of a complete merger.

"Target over time will ultimately become a more focused retailer, potentially with a smaller addressable market," Mr Scott said.

A Wesfarmers spokeswoman said Kmart and Target had been brought together two years ago under the Department Stores division fronted by Guy Russo, and since that time only two Target stores located at Broadmeadows and Templestowe in Victoria had been converted into Kmarts, with a third in the pipeline at Victoria Park in Perth.

"No further conversions have been disclosed as yet," the spokeswoman said.

But, she added, the company's focus would now firmly be on Kmart.

"Kmart is going strongly and that is where the biggest growth and focus is likely to be."

TARGET STORES TO CLOSE AFTER PLUMMETING PROFITS

Queensland University of Technology retail expert Dr Gary Mortimer said he expected more Target stores to close in the near future.

"My feeling is this year, Guy and the team will make a decision on whether or not to close those Target stores that are simply not profitable and rebrand the remaining Target stores into Kmarts," he said.

"I suggested a couple of years ago it doesn't make sense for one conglomerate, Wesfarmers, to run two different discount department stores. They are duplicating their costs and essentially selling the same products."

Just a few years ago, both retailers were flourishing, with Target sales hitting $3.8 billion in 2011 compared to Kmart's $4 billion.

Last year Kmart's profits had ballooned out to $5.58 billion while Target's had plummeted to $2.95 billion.

So where did it all go pear shaped?

Dr Mortimer said Kmart had cleverly positioned itself as an everyday low-price discount department store while jumping on the emerging home decor market, while Target had struggled with an identity crisis.

Now, with both stores under the same management, Target was attempting to mimic the Kmart model - but it might be too late to save the once-successful retailer.

'IT DIDN'T KNOW WHAT IT WAS'

"Initially, Target was in a very good position and Kmart wasn't, but two things happened - Guy Russo came in and took over the Kmart business and clearly positioned it as an everyday low price discount department store and got rid of lots of brands, reduced the range and increased the volume of private label products to keep bringing the price down," Dr Mortimer said.

"In the meantime, Target really didn't know how to position itself - at one point it was selling MAC cosmetics, and toying with ranges like Stella McCartney and Jean Paul Gautier while also selling basic T-shirts and toys. It didn't know whether it was a low price discount department store or an upmarket store.

"The first problem was Target didn't know what position it should take, and secondly Kmart just got good at what it was doing."

He said Kmart's buying team had introduced whole pricing, focused strongly on the emerging home decorating trend and removed "problematic" categories that didn't suit the brand, such as music and some electronics.

Now Target seemed to be attempting to catch up, which meant both stores were becoming increasingly indistinguishable.

"When you look at their catalogues, you see very similar commonalities and cool, upbeat tempo music used in their advertisements - Target is almost mimicking the Kmart model," Dr Mortimer said.

"That becomes problematic because now you have shoppers questioning, what do either stand for? They are basically the same, selling cheap clothing, good value toys and soft furnishings."

Retail expert Brian Walker from the Retail Doctor Group said retail sales weren't growing in Australia in general, which meant the growth of one retailer usually meant a decline in another.

He said Australia was facing a flat retail economy and that there was "intense competition" in the department store space among big players including Kmart, Target, big W and even Myer as well as from online retailers such as eBay, Amazon and Catch of the Day.

"Target was out-competed and the only real advantage it has is locational in certain locations," he said.

He added that he believed consolidation between Kmart and Target was "inevitable".

"It is fairly obvious that they will put resources where the growth is and reduce investment where growth isn't."